Someday, if Cincinnati Bell’s plans succeed, the company’s business will have little to do with its name.

Bell is the last of its breed, the only surviving regional Bell company still bearing the monicker of the telephone’s inventor. It is investing millions of dollars to transform itself into a technology and entertainment company.

If you’re a local home or business owner, Cincinnati Bell wants to provide your television, along with high-speed Internet – and, yes, voice service.

If you’re a chief information officer in Cincinnati, Columbus, Louisville or Indianapolis, it wants to be your business partner.

Now if you’re one of Cincinnati Bell’s 3,100 employees or a beneficiary of its corporate donations in time and treasure, you’re pulling for the company to pull off the transformation. Ninety percent of its workforce is based in Greater Cincinnati, and the company is in the process of bringing 200 customer-support jobs back to the region from the Philippines.

The transformation has already gone so far as to simplify the company’s slogan to focus on TV and non-phone customers. The walkoff line for the ad, such as those that Cincinnati Reds star Joey Votto delivers on the radio, is unadorned: “Cincinnati Bell. You. Entertained.”

So what happened to “reach out and touch someone?”

Bell’s transformation reflects how newer technology – specifically television and the Internet – have reshaped how people communicate.

That Cincinnati Bell, which turns 140 this year, is still alive after flirting with bankruptcy in 2003 and with one arm pinned behind its back by debt, makes its story all the more compelling.

It’s not on firm ground yet. When the company’s fourth quarter profits missed analysts’ estimates in February, Cincinnati Bell’s stock fell 22 percent in one day. Strong first-quarter earnings in May have helped shares rebound about 7 percent since then, and the stock closed on Friday at $3.45.

Cincinnati Bell’s top executive, who previously held senior management roles at General Electric and Cerberus Capital Management, is confident the first-quarter momentum will continue, but he doesn’t mince words about the road ahead.

“We’ve been around 140 years, so this company is used to adapting, but this is a big challenge,” said Ted Torbeck, a Moeller High School, Miami University and Xavier University graduate who became Cincinnati Bell’s chief executive officer in January. “We’ve got to earn it, and we know it.”

For the past 10 years, Cincinnati Bell has been operating with the twin anvils of debt and a declining customer base in its traditional business hovering over its head.

The debt has its roots in 1999, when Cincinnati Bell paid $3.2 billion for Broadwing Inc. to capitalize on the Internet boom and become a national communications player. The bubble burst, and in 2003 Cincinnati Bell sold Broadwing Inc.’s broadband business for $129 million. The company was months from bankruptcy, said Jack Cassidy, who was named Cincinnati Bell’s CEO in 2003 and now is the company’s vice chairman.

The only silver lining in the resulting $2.5 billion of debt was that it likely drove off any would-be suitors and kept Cincinnati Bell independent – which left it to fend for itself against a technological revolution that obliterated the prospects for its traditional landline business, and kept its wireless business from being a viable long-term growth engine.

Landlocked Cincinnati Bell can't compete with big names

According to a 2012 study by the federal Centers for Disease Control and Prevention, 51 percent of homes don’t have or don’t use a landline. And in the wireless space, landlocked Cincinnati Bell can’t compete againstpowers such as AT&T and Verizon, which manage terms from suppliers like Apple and continually invest billions of dollars in their infrastructure to deliver top network speeds.

In February, Cincinnati Bell announced its wireless business, which had about 385,000 customers at the end of the first quarter, is “under review” and that it is exploring all strategic options, which could include a sale or partnership.

Cincinnati Bell plans to start carrying Apple’s iPhone 5 this month, which will be the first time the company has offered the popular phone. Why the company’s opted against carrying the iPhone until now vividly illustrates its wireless dilemma: Apple can force carriers to buy a certain number of iPhones, and those carriers must eat the cost of any unsold iPhones. Carriers also typically subsidize the cost of the $600 iPhones, which they sell for about $200.

The landlocked local market’s size is a challenge for Cincinnati Bell, which must pay other carriers when local customers roam outside its service area, and limits its options. Cincinnati Bell, which does offer a 4G network, continues to evaluate whether upgrading to LTE network speeds that optimize the newest smartphones’ performance is worth the investment.

Instead, Torbeck and Cincinnati Bell are counting on growth from two other businesses: Fioptics, which delivers high-speed Internet, entertainment and voice service through thin, flexible, transparent fibers made out of extruded glass or plastic; and CBTS, which partners with businesses looking to outsource their information technology needs.

Expectations huge for future of Fioptics

Fioptics contributed $22 million toward Cincinnati Bell’s $310 million in revenue in the first quarter of 2013. That’s only about 7 percent, but the company’s expectations for Fioptics are huge, and it’s counting on the product to drive its wireline segment to positive revenue growth in 2014.

Compared to the first quarter of 2012, Fioptics’ revenue grew 52 percent, which helps explain why Cincinnati Bell will plow up to $75 million into expanding the business this year. The company believes it can generate 20 percent returns on its investment.

About 40 percent of the roughly 60,000 current Fioptics subscribers take all three of its products. Between 80 percent and 90 percent take video, which offers 395 entertainment channels, and Internet, both of which are services that will see additional innovations in the coming years.

The company, for example, is customizing apps for Twitter, iHeartRadio and YouTube to complement its video service, and it is creating technology that will allow customers to interact with their TVs using a tablet.

Fioptics will eventually support Internet speeds that are up to 100 times faster than its current top speed, said Darrick Zucco, vice president for Cincinnati Bell’s consumer product strategy.

“The beauty of the architecture that we’re deploying with Fioptics is that it’s very flexible,” said Zucco. “We just upgrade the electronics of the customer’s house when the demand increases.”

Cincinnati Bell expects Fioptics will be available in about 35 percent of the region by year’s end, with a maximum penetration of 60 percent to 65 percent over the next five years. The company says it has a 28 percent penetration rate in the neighborhoods where Fioptics is available, which it characterizes as “strong.”

The company is installing Fioptics where it can get easier access to homes and businesses through aerial lines, and where there is a critical mass of buildings. Digging and less population density will increase the cost of installation, and at some point the numbers don’t work.

“The challenge for Cincinnati Bell is how can they balance the need to invest in something like Fioptics, which is a pretty capital-intensive business, while managing their liabilities,” said Nicholas Puncer, an analyst at Downtown’s Bahl & Gaynor Investment Counsel.

Over time, though, the economics should work beautifully where Fioptics is available, Torbeck said. “Once we reach that point, the investment literally drops to the floor, and then you’re generating a lot of free cash flow,” he said.

Roots of transformation can be traced to CBTS

The roots of Cincinnati Bell’s transformation, meanwhile, can be found in CBTS. CBTS, which Bell launched in 2004,is focused on serving large and mid-sized businesses locally and in Louisville, Columbus and Indianapolis, and follows its customers’ footprints nationally. The company is integrating CBTS, with a portfolio of products focused around professional and managed services, technology infrastructure and cloud services, with its Cincinnati Bell Business Markets operation, which sells networking connectivity, voice and some cloud services to small businesses.

The company expects the integration will save up to $5 million annually and make CBTS more attractive to its existing and target customers, which are enterprise and mid-sized companies that have anywhere from 100 to 1,000 employees.

CIOs at those companies are contending with tighter budgets and an explosion of data that must be managed efficiently. Cincinnati Bell is positioning its IT services and hardware business, which delivered $316 million in revenue last year – a 5 percent increase – as a strategic option for those CIOs.

CBTS’ growth ultimately gave Cincinnati Bell the flexibility to buy Texas-based data-center operator CyrusOne for $525 million in 2010. Some shareholders shuddered, remembering the Broadwing acquisition, but the difference was Cincinnati Bell was buying a high-growth business with existing customers and cash flow, and one without geographic boundaries. CyrusOne has data centers across the world.

In January, Cincinnati Bell spun out CyrusOne, which last year saw revenues increase 22 percent to $220.8 million, into a separate company. Cincinnati Bell retains a roughly 69 percent stake in CyrusOne, which as of May it valued at around $1 billion. That stake gives Cincinnati Bell $28 million in annual dividends.

More importantly, Cincinnati Bell can start selling its CyrusOne shares in 2014, the proceeds of which it will use to pay down debt. Proceeds from the CyrusOne IPO have already allowed Cincinnati Bell to cut $500 million from its debt, which is now $2.1 billion.

The consensus recommendation among nine analysts who follow Cincinnati Bell is a buy, according to Zacks Investment Research. For now, though, Torbeck said the market will link Cincinnati Bell’s stock price with CyrusOne’s performance.

Company has contributed to nonprofits in region

While the ultimate success or failure of Cincinnati Bell’s transformation is obviously material to its employees, the UC Barrett Cancer Center is among the additional stakeholders with a considerable interest in the company’s future.

Over the last six years, Ride Cincinnati has raised $1.5 million for the Barrett Center. Ride Cincinnati was started by long-time employee Michael Gordon, who lost his mother-in-law to breast cancer in 2005, and whose wife is a two-time breast cancer survivor. Cincinnati Bell is a Ride Cincinnati sponsor and 47 of its employees participated this year, raising more than $13,000.

Over the past 10 years, Cincinnati Bell, its employees and retirees have contributed $5.9 million to the United Way of Greater Cincinnati’s annual fundraising campaign. The company contributes to more than 125 local nonprofits.

Other companies and executives do similar work, of course, which is exactly why civic and business leaders continually highlight the number of public and private companies that are based in the region.

“Like many successful metropolitan areas, Cincinnati owes a lot of its success and continued vitality to large corporations that shield it from a lot of secular issues,” said Bahl & Gaynor’s Puncer. “Look at what happened in Detroit, which in part was the result of a flight of big, corporate anchors in the city.”

Or, as vice chairman Cassidy might put it: If you want to talk to the CEOs of AT&T or Verizon, good luck.

“When we go to the grocery store, we’re going to face customers,” he said. “Our work had better be good.” ⬛

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